10 November 2015

Ted Cruz Promises a Country of Prosperity, Hope, and Freedom from Math

What new ideas did we bring? I always give a one-word answer: arithmetic.- Bill Clinton, only president since 1949 to preside over a budget surplusEvidence is not all that compelling.
- Daniel KahnemanIn tonight's debate, we heard Rand Paul, Marco Rubio, Ted Cruz, and Ben Carson make promises to radically cut taxes. And balance the budget. Ted Cruz's promised tax cut might be the most interesting to examine. Cruz promises a flat tax of 10%, but only on income over the first $36,000. So what does that mean for tax revenue and what does that imply about budget cuts?Well, social security reported that nearly 100,000,00 people made $39,999 or less a year in 2014. That's nearly $1.7 trillion in wages - or GDP - that Cruz would not tax at all. Additionally, there are another 58,750,986 wage earners who earn more than $40,000. They, too, would get to deduct the first $36,000 in income before they started counting the amount that would need to be taxed at 10%. So that's another $2.1 trillion in wages that would be tax exempt.So, only $3.3 trillion of the $7 trillion in wages would be taxed. At 10%. That makes for $330 billion in revenue.Now, let's assume that all the rest of GDP - the other $10 trillion made up of profits, rental incomes, dividends, etc. - were also taxed at Ted Cruz's 10%, offering no deductions for businesses or investors. So, that yields $1 trillion more in revenues.With Cruz's tax plan, total federal revenue would total $1.3 trillion. This suggests a problem. Federal spending was roughly $3.5 trillion in 2014. So, if Cruz will balance the budget, he's going to cut $2.2 trillion from the budget. That's 63%. Let's put aside the fact that he'd instantly reduce GDP by 13%. Let's just focus on how a person might cut the budget enough to make this math work.

One approach is just to cut from the bottom up. "All other" includes silly things like federal courts, FBI, Treasury Department, IRS, Secret Service, etc. We could try living without money or courts. That's $63 billion and we need to cut another $2.137 trillion.So let's close all of our foreign embassies. Those governments can email us.Cut all research into cures for cancer and heart disease and ... well, any research at all.Then we cut all education funding, federal grants that help with student aid and student loans.We will stop spending on infrastructure. No need for airports, roads, bridges, or docks.We can cut all retirement pay to all military and federal employees. They can move in with family.Interest we'll have to pay in order to keep our credit rating but we can cut all welfare and job subsidies. People in this country have already proven that they can live on the streets.This leaves only three items on the list: social security, medicare, and defense.In order to make the numbers work, we'd only have to cut each of those by 54%. More than half.One beauty of this is that we'd have no impact on the economy (the folks who collect data on economic growth and revenue would be laid off), no complaints to Congress (no money to pay Congress or their staff or perform maintenance on the building or the grounds in DC), and no silly complaints about veteran's healthcare (again, no one on staff to handle complaints about the lack of staff to treat veterans). Maybe you have a different way to make the math work. $2.2 trillion out of $3.5 trillion doesn't leave you many options, though.Of course candidates know that they get far more applause promising huge tax cuts than they do by itemizing what actual cuts they'll make. Still, the degree to which these GOP candidates are allowed freedom from math is unprecedented.